Succession Planning

Inheritance tax planning is the process of structuring a client’s estate to reduce the inheritance tax liability that arises on death, or to ensure that the tax can be met without disrupting the assets beneficiaries are intended to receive. For a high net worth family where wealth is often held across property, pension funds, family businesses, investments, and trusts, the interaction between different asset classes and the applicable exemptions and reliefs can be complex. Effective tax planning ensures that the right structures are in place well before they are needed, and that the estate can be transferred to the next generation as tax-efficiently as possible.

Business property relief (BPR) is a tax relief that reduces the value of qualifying business assets for inheritance tax purposes. Historically available at 100%, BPR has been widely used by owners of family businesses, AIM-listed shareholdings, and trading companies to pass assets to a beneficiary free of inheritance tax on death. From April 2026, BPR has been capped at the first £1 million of combined qualifying assets, with 50% relief applying above that threshold. For business succession planning, this means that larger family businesses and investment portfolios that previously passed free of IHT will now carry a real inheritance tax liability and that funding or protection needs to be in place to meet it.

Agricultural property relief (APR) operates similarly to BPR, providing tax relief on the agricultural value of qualifying farmland and farm buildings for inheritance tax purposes. From April 2026, APR has been reformed with 100% relief capped at £2.5 million of combined qualifying assets. For farming families, this change significantly increases the potential IHT bill on the transfer of agricultural estates and makes succession planning, including the use of lending solutions to fund a tax liability without requiring a forced sale of farmland, a pressing priority.

Until April 2027, most unused pension funds sat outside the estate for inheritance tax purposes, making them a widely used vehicle for passing wealth to a beneficiary tax-efficiently on death. From April 2027, most unused pension funds and pension death benefits will be brought within the scope of inheritance tax for the first time. For clients with large, undrawn pension pots, this will create a new or materially increased inheritance tax liability, often at a combined effective tax rate of 64% or higher when income tax on the pension at the beneficiary’s marginal rate is also taken into account. Whole of life cover, written in trust, is one of the most efficient tools for funding this incremental IHT bill.

A family investment company (FIC) is a private limited company used by high net worth families as a vehicle for holding and managing investments and passing wealth to future generations in a tax-efficient manner. FICs can offer advantages in terms of income tax, capital gains tax, and corporation tax treatment compared to holding assets personally, and can be structured to give different family members different classes of shares, allowing control and income to be separated from capital value. For succession planning and inheritance tax planning purposes, an FIC can be an effective way of moving wealth out of a client’s estate gradually over time, though the tax implications of establishing and running one require careful legal advice and tax planning.

A will is the foundation of any estate plan. It sets out how assets are to be distributed on death, appointing executors, and making provision for a surviving spouse or other family members. Good legal advice ensures that a will is structured to make the most of available exemptions, including the nil-rate band, the residence nil-rate band, and the spousal exemption, and that it reflects any lifetime gifting strategy the client has in place. However, a well-drafted will is only the starting point. The financial solutions to fund any inheritance tax liability, support lifetime gifting, and ensure business succession arrangements can be executed must sit alongside the legal structure. This is where our role at Henry Dannell’s starts, we can recommend options and source the solutions.

A lifetime gift that is made more than seven years before death falls outside the estate for inheritance tax purposes entirely, with a taper of the potential tax relief applying in years three to seven. This makes lifetime gifting one of the most straightforward and effective inheritance tax mitigation tools available, particularly for clients who have sufficient income or liquid assets to fund gifts without compromising their own financial security. Where a client has illiquid wealth, for example in property, a family business, or an investment portfolio, a short-term lending facility can fund a significant lifetime gift immediately, starting the seven-year clock from the date the gift is made rather than the date the loan is repaid.